For Wednesday December 11, 2013, We Recommend Against Investing


Investment Recommendations:

Avoid US markets and watch closely to see what trend develops.  Cash positions (including some currency outside of bank accounts) and price inflation hedges are still recommended.  There is too much uncertainty in US markets right now to make an investment recommendation, although it is probably safe to hold any currently owned equities for a few weeks.

Technical Comments:

The S&P 500 declined 0.32% Tuesday with volume below Monday and lighter than the 30-day moving average.  Last week had 3 consecutive strong-volume down-days, and since then there have been light-volume days, including Tuesday.  This reduces the odds a predictive pattern will be formed.  Should the S&P 500 drop about 28 points on Wednesday (-1.6%) our automated market forecast would likely change to an uncertain trend.

Subjective Comments:

In the past few days the Hindenburg Omen has appeared twice.  This technical indicator is not fool proof, but it has in the past been an early warning of a market decline.  Historically this indicator typically occurs around a month before markets go down.  The light volume so far this week is curious.  The final FOMC meeting on monetary policy is next week, so there’s lots of speculation about tapering back on the amount of money printing by the Fed.  What is very important to keep in mind about the Fed’s QE money printing right now is that QE is winding up as excess reserves in banks and it is NOT the major driver in M2 money supply growth right now.  Bank lending is what is driving the growth rate of the money supply.  If bank lending accelerates sufficiently it will keep the current bubble-boom going.  Otherwise the bubble will end as explained by Austrian Business Cycle Theory.

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